LAHORE - Pakistan’s equity market sustained last week’s positive momentum to close at all-time high of 30,475 points. The KSE-100 index gained 0.8pc WoW with 32pc WoW higher average trading volumes of 173 million shares. On the macro front, the State Bank of Pakistan (SBP) in its first Monetary Policy Statement (MPS) of FY15 kept policy rate unchanged at 10pc. The cement sector remained in the limelight, in anticipation of acquisition of Lafarge Pakistan Cement (LPCL). LPCL on the last day of the week announced acquisition of Lafarge shareholding by Bestway Cement for a total enterprise value of $329m. In the banking sector, Askari Bank (AKBL) was the star performer (up 13pcWoW) as it reported higher than expected 1H2014 EPS of Rs1.7 along with an interim cash dividend of Re1/share. On the contrary, fertilizer sector remained under pressure as Fauji Fertilizer Bin Qasim (FFBL) and Fauji Fertilizer Company (FFC) reported lower than expected 1H2014 earnings. Other key highlights of the week were (1) Trade deficit down 2.5pc YoY to $20.0b, (2) IMF expected to approve $550m for Pakistan and (3) T-bills auction raising Rs115b versus target of Rs100b.

According to statistics, current account in June 2014 posted a deficit of $89m (vs. $57m in May 2014) mainly on account of higher services deficit. Recall that in May 2014 a services account registered a surplus of $128m on the back of Coalition Support Fund (CSF) flows worth $375m. Meanwhile, trade deficit also ticked up by 3pcMoM to $1.49b (higher than FY14 average monthly deficit of $1.38b). With June 2014 incorporated, Pakistan’s CAD clocked in at $2.9b for full-year FY14 (1.2pc of GDP), as against $2.5b deficit recorded in FY13 (1.1pc of GDP). Key drivers of the YoY higher CAD are 1) Trade Deficit, which rose by 7.7pc YoY as import growth (+ 3.9pc YoY) outpaced the export growth (+ 1.5pc YoY), and 2) lower CSF flows which amounted to $1.05b, down 42pcYoY. Note that ex-CSF, FY14 CAD would rise to $4.0b. The customary support to CA came from overseas remittances, which rose sharply by 13.7pcYoY to $15.8b in FY14.

Overall external account reports a surplus in FY14 Despite relatively disappointing figures of the CA, Pakistan reported a healthy surplus of $3.8b on the BoP front, sharply higher compared to a $2.0b deficit registered in FY13. This substantial YoY improvement of the external account is on the back of strong uptick in financial flows which were led by 1) receipts of $2b from the Euro Bonds by the Pak government and 2) $1.5b worth ‘grant’ received from Saudi Arabia.

Experts said that Pakistan’s foreign exchange reserves position does mirror the improvement seen in the external account, as net liquid reserves of SBP surged by 51.4pcYoY to $9.0b in FY14. Consequently, rupee appreciated by 1pc YoY in FY14. Note that as per latest data release, SBP’s liquid forex reserves have inched up further to $9.5b after receiving IMF’s fourth tranche (worth $556m) earlier this month.

According to stock market experts, fiscal year ending June 2014 (FY14) has been one of the best years for Pakistan stocks. In the outgoing fiscal year, benchmark KSE-100 Index gained 41pc or 8,647 points (42pc in US$-terms).

Fuelled by newly-elected investor-friendly govt, economic and energy sector reforms, both local and foreign investors participated in Pakistan stocks in large numbers. Pakistan FY14 return of 41pc compares favourably with the last 10-year and 20-year average annual return of 21pc. In FY14, MSCI Pakistan gained 23pc compared to 31pc gain of MSCI Frontier Markets (MSCI-FM) and 16pc gain of MSCI FM-Asia. Moreover, amongst Asian frontier markets categorised by MSCI, Pakistan ranks first outpacing Bangladesh (21pc), Vietnam (13pc) and Sri Lanka (-1pc).